Google, Do You Really Want to Be a Telecom Company?

So by now all of you have heard that Google’s imperial ambitions will potentially include a telecom / broadband infrastructure component as well. At least for the luckily residents of San Francisco, CA, that is. Google announced this week that it would be entering the competition to create a wi-fi network to provide San Fran consumers with high-speed Internet connections. (Om Malik of Business 2.0suggests that Google’s ambitions are indeed quite grand and might include a full-blown national broadband network).

Will it work? I don’t know, but any time a company with an $86 billion market cap says it’s going to throw a big wad of their cash at something, you should take it seriously. But what is Google doing playing the infrastructure provider game? Certainly this is outside their “core competency” and does not seem to fit nicely within their overall gameplan of becoming the world’s most well-diversified e-commerce giant. If you look at the world through the prism of the “layers model,” it’s easy to imagine Google as a player in every layer EXCEPT for the physical infrastructure layer. Playing ball in that layer is quite a different game than what Google has thus far developed an expertise in.

A “Next Generation Conglomerate”…
Then again, maybe Google wants to be the ultimately layer-breaker or layer-integrator. In a very interesting piece in the latest Fortune, David Fitzpatrick argues that e-commerce giants like Google, Yahoo, eBay, Amazon and Microsoft are the “next generation conglomerates” who will ultimately control not just Web surfing and networking, but also telephony, news & entertainment, retailing and even banking.

(Just as an aside, I find it amusing that after all the whining we’ve heard about media conglomerates like Time Warner, Disney, Viacom, Comcast, Clear Channel, and others taking over the world, now we are told that we can just forget about them and focus on the NEW conglomerates. This is the point where I say “I TOLD YOU SO!”… and then tell you to go check out my last book on this subject of “Media Myths.”)

… That Could End Up Being Regulated Like One
Anyway, here’s the question I really want to get to about Google making a foray into the infrastructure business: Are they really prepared for the potential regulatory nightmare that could follow?

Thus far, Google has miraculously escaped any threat of regulation– although I have long been predicting an antitrust case will emerge against them (probably in Europe) sometime very soon. But if Google gets involved in the physical infrastructure business, there will almost certainly be regulations that follow.

In fact, at this point is worth recalling the House Commerce Committee telecom “discussion draft” that we have been writing quite a bit about on this blog in recent weeks.

That bill would impose a host of old broadcast and cable regulatory requirements on new providers of “broadband Internet transmission service” (BITs), “broadband video service,” and “VoIP service.” To the extent any new service is pigeonholed into one of these new regulatory classifications, it will face a variety of requirements including must carry mandates, free airtime for politicians, program ratings schemes, ownership caps, and public, educational, and governmental (PEG) set-asides. “Net Neutrality” mandates will also apply, which are intended to prohibit “digital discrimination” on these new networks and systems.

OK, so you’ve already guessed the question I’m getting to here: Does Google fit into any of these new regulatory classifications? I think they do. Take a look at the definition of a BITS provider:

“The term ‘BITS’ or ‘broadband Internet transmission service’ (A) means a packet-switched service that is offered to the public, or to such classes of users as to be effectively available directly to the public, with or without a fee, and that, regardless of the facilities used (1) is transmitted in a packet-based protocol, including TCP/IP or a successor protocol; and (2) provides to subscribers the capability to send and receive packetized information; (B) includes any features, functions, and capabilities, as well as any associated packetized facilities, network equipment, and electronics, used to transmit or route packetized information…”

And here’s the definition of a “broadband video service” provider:

“The term ‘broadband video service’ means a two-way, interactive service that (A) is offered, with or without a fee, to the public or to such classes of users as to be effectively available to the public, regardless of the facilities used; (B) integrates, on a real-time and subscriber customizable basis, a video programming package with voice and data features, functions, and capabilities; and (C) integrates the capability to access Internet content of the subscriber’s choosing…”

I think it’s pretty clear that Google could be pigeonholed into both of those definitions. After all, not only are they getting into the networking business, but they are increasingly boasting of their new media-slayer status and with popular services like “Google News” and “GoogleTV.”

And wouldn’t it be terribly ironic if Google–one of the biggest supporters of Net Neutrality regulations for current infrastructure providers–came to be burdened by them more than anyone else! After all, what do they want out of that San Fran wi-fi network? They might say they’re going to build it out of the goodness of their hearts, but in reality, it could be just another brilliant method of driving traffic to Google’s site and services. If, therefore, the price of admission to Google’s “free” wi-fi network was that every time you got online you were first greeted with an array of Google links or services, or that they strongly encouraged you to use GMail as your e-mail service, or they automatically built in other Google-specific defaults, at what point would any of this run afoul of Net Neutrality mandates?

It’s impossible to determine currently, of course, because we’d have to wait and see how the regs get written and interpreted. But I would just remind everyone of Microsoft’s antitrust ordeal in this regard since many similar issues were brought up in conjunction with their tying of services and applications to its operating systems.

Finally, let’s not forget about the “anti-redlining” and build-out requirements in that new House Commerce Cmmt. discussion draft. While these provisions are still in a state of flux, it appears likely that Congress will impose penalties on broadband video operators who fail to build-out their networks according to the congressional blueprint of what “fair” technology / network diffusion looks like. Moreover, many local governments try to play the “redlining” card all the time in an effort to force firms to build-out networks. So, if Google just plans on deploying a wi-fi network in downtown San Fran, is that “fair.” What about the folks just outside the city? How about Oakland? It just isn’t fair!!… at least that’s what some lawmakers could argue. Google, are you ready for your first redlining lawsuit?

Conclusion
Let me just close by making it clear that I would not favor ANY of these regulations for Google whether they get in the infrastructure business or not. But if they do jump into the physical layer, I think they are setting themselves up for more regulatory problems than they currently realize.

But when you’ve got $86 billion burning a hole in your pocket, I guess it’s just too damn tempting not to play games like this. Good luck Google! God knows you’ll need it once you come face-to-face with the regulatory juggernaut that you have so far managed to avoid.

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Adam Thierer / Adam is a senior research fellow at the Mercatus Center at George Mason University. He previously served as President of the Progress & Freedom Foundation, Director of Telecom. Studies at the Cato Institute, and Fellow in Economic Policy at the Heritage Foundation.